Last Updated: June 10, 2022

The Best, Vital Aspects of E&O Insurance for Insurance Agencies

TLTR: This article explores why E&O insurance for agencies is essential. It also explores what the policy means and the types of coverage that it provides for agencies.

In the corporate world of insurance, making mistakes can be costly. Especially when it comes to working with insurance customers. On the off chance that you slip up and it proves to be disadvantageous to your clients, you could be facing a lawsuit—and one of the worst things an agency can experience is a lawsuit from one of its clients.

If your agency frequently deals with clients and advises them, then you need some form of insurance protection. Especially when you recommend insurance products to them, you could be vulnerable to potential lawsuits if your advice causes your client to allege experiencing some form of loss. That’s where E&O insurance comes into play.

In this blog

What is E&O Insurance For Insurance Agencies?

Errors and omissions (E&O) insurance helps protect your business against lawsuits related to professional errors in services that your company provides. Whether you’re just starting out or have been established for decades, E&O insurance could save your business from a financial crisis. This policy will have your back in the event that someone makes a claim about misinformation or negligence due to a product or service provided by you.

This type of insurance is quite important for companies and corporations. As per Statista, Berkshire Hathaway alone leads the U.S. marketplace for maximum written premiums when it comes to medical errors and omissions. In 2020, they wrote $1.71 billion worth of direct premiums for medical malpractice.

E&O insurance for agencies is a type of liability insurance. It covers costs related to court fees and any settlements as mentioned when an insurance contract is issued. Such policies are necessary for insurance agencies, as they provide coverage when a company is held liable. Usually, this policy is included in a professional liability insurance policy for businesses.


Who Needs E&O Insurance?

E&O insurance is recommended for any company with employees. It could benefit any type of business that offers one or more services to clients, including digital marketers, PR firms, graphic designers, and others who might act as an intermediary between client and product.

And speaking of intermediaries, E&O insurance is definitely useful to insurance agencies since they act as a bridge between customer and insurance companies.

What Does It Cover?

E&O insurance for agencies primarily covers legal expenses related to lawsuits, which can arise in difference scenarios. Here are some of the situations that errors and omissions insurance provides coverage for:


While running an agency, your employees can underperform in their responsibilities and tasks. This can lead to disgruntled clients who may feel inclined to file a lawsuit. For example, a customer can claim that your service was incompetent or careless, which led them to having inadequate or incorrect coverage that led to some sort of material loss for them. When they file a lawsuit against you in this situation, you could face significant financial loss if you do not have proper insurance. In such situations, E&O will cover legal expenses, attorney fees, and court fees.

Professional Errors

It’s a fact of life: People are imperfect and can make mistakes. That certainly includes the folks who work for your agency. And mistakes can leave you susceptible to lawsuits. When a client sues you over a mistake which costs them financially, your agency could face significant loss. E&O coverage will protect you from such losses.

Inadequate Services

Agencies are responsible for providing clients with insurance products that fulfill their requirements. They also connect clients with carriers. Clients usually expect to at least get what they want, if not something that exceeds their needs and expectations. Most of the time you can and will provide satisfactory service. But if a client is seriously unhappy, whether justified or not, you could face a lawsuit. An E&O insurance policy will cover your legal expenses in this case.


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When is Errors and Omissions Insurance for Insurance Agencies Most Needed?

There are E&O insurance options for agencies that work with an insurance carrier. Working with carriers will come with many instances of potential miscommunications, inadequate service, and misinformation. Carriers do take such matters seriously and can readily take legal action against smaller insurance agencies they work with.

So E&O insurance is especially important as your agency gets bigger, works with multiple carriers, and has more employees. This coverage can protect you from financial crises if a client or partner carrier claims there was misinformation provided by an agency during the process of service delivery—in other words, a failure to provide proper information.

E&O insurance handles claims against businesses when their clients say they were hurt financially or otherwise by untimely delivery of service or a failure of the business to uphold their obligations. E&O insurance can help agencies pay for the cost of investigating and settling claims from clients who believe they have been wronged in some way.

Note: E&O insurance also often handles issues related to copyright infringement or other violations at the federal level.


How Much Does E&O Insurance for Agencies Cost?

The cost of E&O insurance for agencies varies from one agency to the next. But, generally speaking, it depends on the following factors:

Agency size can play a significant part in determining the cost of your errors and omissions insurance. With a larger number of employees, you will have higher risks. And with higher risks come higher policy rates. Conversely, with a smaller number of employees your agency can get lower rates.

Business location will affect insurance rates based on the state you operate in. And keep in mind that some states can have higher coverage requirements than others. Make sure to check with your state’s insurance governing body for details.

Coverage limits as per your requirements can either increase or decrease the overall cost of your policy. With a higher amount you will have a fair amount of coverage if you have bigger lawsuits, but you will need to pay more premiums on a monthly basis. If you opt for a lower coverage amount on your policy, you will end up paying lower monthly premiums.

Agency revenue can potentially invite higher risks. When your agency earns more, the chances of errors and mistakes can also increase. This can lead to a higher frequency of lawsuits from unhappy clients if you’re not consistent with the quality of your service.

Past claims history is an important factor in deciding the price of your E&O coverage. If your agency frequently faces multiple lawsuits, you could end up paying higher insurance rates

Note: According to The Hartford, the average cost of E&O insurance usually amounts to $500 to $1,000 per employee annually. 

Additional Coverage to Pair With E&O Insurance for Agencies

While E&O insurance protects your agency from lawsuits, it isn’t an all-encompassing policy. It doesn’t offer adequate protection against situations that aren’t relevant to professional errors. As an insurance agency, you should also consider the following policies:

General Liability Insurance

The policy covers any relevant expenses that involve customer property damage, injuries, and slander. General liability insurance also covers legal defense costs related to client property damage or injuries.

Worker’s Compensation Insurance

This covers the medical expenses and lost wages of an employee if they suffer an injury on the job and are unable to continue their work. Workers compensation insurance policy is mandatory in most states for all types of businesses.

Business Owner’s Policy (BOP)

This is a bundle policy that combines a general liability insurance along with commercial property insurance. It provides coverage against any damage to your clients due to your actions. Furthermore, business owners policy also covers any damage to the business property due to natural disasters such as fire, rain, and lightning, to name a few.

Employee Practices Liability Insurance (EPLI)

Employment practices liability covers agencies against situations involving unfair conduct. This includes situations such as unfair treatment, wrongful termination, sexual harassment allegations, and discrimination.

Common Claims For E&O Insurance For Insurance Agencies?

Here are some of the most likely scenarios for E&O insurance claims:

Lack of Communication

While working in insurance, an employee must provide clients with the correct information as well as documentation to supplement it. Failure to do so could lead them into legal trouble. A lack in communication skills can lead to misunderstanding with their client or partner about what they expect from a project or task, which could result in a negligence claim.

Falling into the same failure-of-communication category are cases involving omissions—where an individual causes unintentional harm because they left something undone that would have prevented further damage. If your agency goes through such situations without having E&O insurance, it could face serious losses.

Breach of Contract

Carefully reading and understanding a contract is very important. A breach of contract can have devastating consequences. Your client or partner could sue you if they are not satisfied that you’re holding up your end of the bargain.

So what’s the most critical step when drafting a legal agreement? Defining every term clearly so there isn’t anything left up to interpretation. Not doing so could land you and your agency into an E&O claim from dissatisfied clients. With proper errors and omissions insurance, you can be covered against any settlements and legal costs.

Software Failure

A majority of an insurance agency’s work is done through computer systems and insurance software. Often, software can fall victim to malware. Such malfunctions to system software can cause financial losses to clients and partners. In such cases your agency could be liable for the damages.

While the software manufacturer might also be responsible for providing faulty software, if the malfunction was due to the agency’s action or inaction, then the manufacturer isn’t liable. In order to stay covered in such a situation, E&O insurance is important. Agencies should pair this policy with a  cyber insurance for extra backup.

In Conclusion,

Running a professional agency can require some level of expertise and skill. And with it comes an increased chance of liability when that very expertise falters. An agency has the vital role of bridging clients and carriers which are always tied with legal responsibilities. And being prepared for the times when you are held liable is absolutely necessary.

E&O insurance for agencies is a crucial safety net to protect you and your business.

Was this insurance blog helpful? Leave a comment below and let us know your thoughts.

Frequently Asked Questions

How Vital Is It to Have an Active E&O Policy?

An errors and omissions policy can only provide you with benefits as long as it’s active. Let’s say you retired as an agent, and discontinued your E&O policy. One day an old client of yours files a lawsuit against you for inadequate information when you provided your services. Since your policy is no longer active, you will have to bear the hefty costs of the lawsuit out of your own pocket.

In order to stay covered, you need to have an active E&O policy during the lawsuit and when the inciting incident occurred.

How Much E&O Insurance should an agency get?

This question is best answered by figuring out your agency’s risks, needs, and budget. Although you can save quite a bit of money by opting for a cheaper E&O plan, an expensive lawsuit could force you to go over your coverage limit. It’s best to assess your potential risks and coverage needs before purchasing your errors and omissions insurance.

Does E&O Insurance Have Any Exclusions?

Yes, it does. E&O insurance policy terms and coverage can differ depending on which insurer you approach, but the most common exclusions are:

  • Property damage
  • Bodily injury
  • Criminal and fraudulent acts
  • Copyright infringement
  • Bankruptcy

It’s always best to be thorough while reading your E&O policy. Furthermore, it’s always best to consult with a professional familiar with that line of insurance.

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